Across the universe of firms in Tanzania

Submitted by Isis Gaddis
On Mon, 05/13/2013

co-authors: Jacques Morisset, Waly Wane

Let's think together: Every Sunday the World Bank in Tanzania in collaboration with The Citizen[1] wants to stimulate your thinking by sharing data from recent official surveys in Tanzania and ask you a few questions.
In industrial countries, small and medium firms are the vectors of economic innovation and job creation. In the USA, small-businesses account for almost two-thirds of all net new job creation. They also contribute disproportionately to innovation, generating 13 times as many patents, per employee, as large companies do. Small business owners are also in general more educated and wealthier than the rest of the active population.
The reality is different in Tanzania. The vast majority of firms are very small and predominantly confined to self-employment. They are also highly concentrated in agriculture and trading activities:

- In 2010/11, there were approximately 11 million family-owned businesses operating in Tanzania, including farms. This is equivalent to a rate of entrepreneurship of 40 percent, which is about the rate reported in Uganda and Ghana, but three and 10 times higher, respectively, than in the United States and France.
- Half of the firms operating in Tanzania have only one employee, typically the owner; while an additional 40 percent report less than five employees. Firms with more than 10 workers represent only 0.6 per cent of the firms’ universe (still almost 70,000).

- About 55 percent of firms are involved in agriculture, followed by trading (30 percent), and manufacturing (5.5 per cent). Businesses operating in specialized sectors, such as information and technology or professional services, account for only 1 per cent of total firms.

The breakdown between farms and other firms provides a more precise picture of the business reality in Tanzania as of 2010/11. Farms are in general bigger, older, and more likely to use non-family workers. By contrast, non-farm enterprises are more likely to be located in urban areas, young, family-oriented, and operating on non-fulltime basis as reported in the statistics below.

- Urban: Almost half of non-farm enterprises (excluding mining) are located in urban areas. Out of these urban businesses, one third is in Dar es Salaam while the remaining two thirds are in other cities and towns.
- Young: A quarter of non-farm enterprises report to be younger than one year and two-thirds of them are less than five years old.
- Family business: Approximately 90 per cent of non-farm enterprises use exclusively household workers.
- No full-time: On average, non-farm enterprises are operating eight months per year. Partial activities are especially visible with trade and transports.

This snapshot of the operating enterprises in Tanzania raises a set of strategic questions:

- Can small, young, and non-specialized firms create enough (decent) employment for Tanzanians?
- Does the high entrepreneurships rate reflect the lack of employment opportunities in the formal labor market?
- To what extent can urbanization help generate more dynamic and productive firms?
- Does the importance of family/household business represent an obstacle to innovation and experimentation?